Introduction
The procurement process is critical for organizations to acquire the right items, of the right quality, at the right price, and in a timely manner to execute projects successfully within budget (Burt et al., 2011; Kraljic, 1983). Effectively managing suppliers necessitates continuous monitoring of their performance, especially when relying on external sources for materials, products, or services, as pointed out by Cheng (2001).
Aligning quality controls and governance with the overall corporate, business unit, and functional strategies is crucial to mitigate perceived supplier risks. To achieve this, a well-structured performance assessment matrix is needed to enable progress monitoring and assessments. Given the high-risk nature of the construction industry, leaders must analyze and develop viable strategies to manage procurement-related risks and mitigate potential negative impacts (Hannon, 2009). It is vital to communicate and share a structured supplier evaluation matrix, aligned with the company’s core values, with all stakeholders to achieve profitable leverage and improved return-on-assets (Hannon, 2009).
Managing Plant and Product Quality
Defects can be costly if discovered later in the process, emphasizing the importance of quality management plans (QCP) to respond effectively to defects. Evaluating suppliers’ performance facilitates engaging in a constructive dialogue and making suppliers aware of potential challenges associated with compromised product and service quality (Johnson et al., 2015). Despite having a solid and structured supplier evaluation and performance measurement matrix, APC’s case study showed quality issues arising from defective supplies from their single-source supplier, Branco (Johnson et al., 2015). Proper alignment of contractors’ contracting strategy with business requirements is essential to avoid legal challenges and potential litigations (Cheng, 2001).
Effective Communication and Coordination
Solid customer service, well-structured communication processes, and healthy relationships play key roles in resolving defects challenges within the system (Teague, 2007; Möller et al., 2003). Communication serves as a tool and medium for understanding each other’s needs and requirements, enhancing the probability of defect elimination in the process (Möller et al., 2003). Insufficient coordination can negatively impact efficiency and business objectives (Carter et al., 2007). To drive success and improve sustainability, a unified and collaborative approach is crucial (Carter et al., 2007). Performance evaluation enables organizations to maintain a competitive edge by collecting, measuring, and analyzing production data, aligning outcomes with strategic objectives (Johnson et al., 2015).
Analyzing Branco’s Performance as a Major Supplier
Branco, the single-source supplier of customized packaging cartons to APC, posed a high supply risk due to its dominance in the packaging market (Johnson et al., 2015). The high supply risk category, as identified by Kraljic (1983), allowed Branco to monopolize the market, creating unresolved supply risk issues for APC despite facing quality challenges in Branco’s production line (Johnson et al., 2015).
Strengths and Weaknesses
Branco exhibited top-class technical capability, capable of producing unique customized packing products in various sizes, meeting clients’ specific requirements (Teague, 2007). However, the compromise of quality standards over a long period led to deteriorating quality levels (Teague, 2007).
Impacts of Poor Quality
APC’s culture of customer service and proper governance enabled them to design and establish a well-structured supplier performance management assessment tool, ensuring the sustainability of their business and that of their suppliers (Kaplan et al., 1992). Noncompliance reports (NCR) were issued to address risks and defects. Despite warnings, Branco’s rating deteriorated due to unidentified defects in their fully automated production processes (Kaplan et al., 1992). APC faced a significant production loss but could not replace Branco due to its monopolized dominance.
Improving Supplier Performance: Lessons from Branco’s Case Study
Proper Definition of Business Strategy Supplier appointments must be value-driven and aligned with the organization’s business and functional strategies, weighing probable inputs required from the supplier (Carter et al., 2007). A supplier that can adapt to the buyer’s strategy, commit, and collaborate based on values and ethics is essential (Barringer et al., 2000). A unified business strategy between parties adds value and enhances customer confidence (Krause et al., 2007).
Developing and Implementing KPIs
Key Performance Indicators (KPIs) enable both parties to know their current status and desired direction (Kaplan et al., 1992). KPIs drive teams towards specific objectives and define how stakeholders value and rate the organization, facilitating retrospective analysis and future forecasting (Kaplan et al., 1992).
Promoting Healthy Communication and Collaborations
Engagement through 360-degree feedback serves as a baseline for a collaborative and healthy relationship, allowing constructive information sharing to minimize complexities within the system (Prahinski et al., 2004). Constant engagement helped Branco and APC manage defects challenges (Prahinski et al., 2004).
Monitoring Progress and Compliments
Continuous monitoring and reflection of past performance are crucial for shaping the future of both organizations. Planning and aligning supplier deliverables against agreed baselines facilitate progress monitoring and positive/negative feedback as needed, ensuring product quality and sustainability (Burt et al., 2011).
References
- Kraljic, P. (1983) ‘Purchasing must become supply management’, Harvard Business Review, 61 (5), pp. 109–117
- Cheng, E., Li, H., Love, P., & Irani, Z. (2001). An e-business model to support supply chain activities in construction. Logistics Information Management, 14(1-2), 66-78
- Burt D., Petcavage S., Pinkerton R. (2011) Proactive purchasing in the supply chain: the key to the world-class procurement. – McGraw_Hill, Inc.,
- D. Hannon, (2009) “Purchasing Drives Deeper into Logistics,” Purchasing 138, no. 7 p. 76.
- Johnson, P.F., & Flynn, A. E. (2015) Purchasing and supply management. 15th ed. McGraw-Hill Higher Education. ‘Supplier Evaluation and Supplier Relationships’, pp. 365-370
- Möller, K. & Törrönen, P. (2003) ‘Business suppliers value creation potential: a capability-based analysis,’ Industrial Marketing Management, 32 (2), pp. 109–11
- Gordon Sherry, (2005) Seven Steps To Measure Supplier Performance. Quality Progress, Aug2005, Vol. 38 Issue 8,
- Teague, P. E. (2007), “How to Improve Supplier Performance.” Purchasing 136, no. 4 pp. 1–32
- Barringer, B. R., and J. S. Harrison. (2000) “Walking a Tightrope: Creating Value through Interorganizational Relationships.” Journal of Management 26, no. 3, pp. 367–403.
- Krause, D. R.; R. B. Handfield; and B. B. Tyler. (2007), “The Relationship Between Supplier Development, Commitment, Social Capital Accumulation and PerformanceImprovement.” Journal of Operations Management 25, no. 2 pp. 528–545.
- Kaplan, R.S. & Norton, D.P. (1992) ‘The balanced scorecard – measures that drive performance’, Harvard Business Review, 70 (1),
- Carter, P. L.; J. R. Carter; R. M. Moncska; J. D. Blascovich; T. H. Slaight; and W. L. Markham. (2007) Succeeding in a Dynamic World: Supply Management in the Decade Ahead. Tempe, AZ
- Prahinski, C.,Benton,W.C.,(2004).Supplier evaluations: communication strategies to improve supplier performance. Operation management .22,39–62.
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